A protest against presidential candidate Keiko Fujimori in downtown Lima

Gisela Ortíz has carried on her lapel a laminated photograph of her brother since 1992. In that year he was killed by one of the death squads for which former president Alberto Fujimori was imprisoned, along with other crimes including embezzlement and bribery, in Peru.

“It will be shameful for Peruvians to have another Fujimori in power,” she says.

This week, tens of thousands like Ms Ortíz took to the streets to rally against the former leader’s daughter, Keiko, the clear forerunner in the race to replace President Ollanta Humala in Sunday’s election.

Voters will not only cast judgment on the place of history in modern Peru. They will decide on how their country maintains its place as Latin America’s top major economic performer within a discredited political system.

Many Peruvians still praise Fujimori for destroying the bloody Maoist Shining Path insurgency, taming hyperinflation, delivering assistance to the impoverished and paving the way for the country’s economic success of the past decade. They hope his daughter will follow his lead in spurring the economy and tackling insecurity head on. The protests this week took place on the anniversary of the “auto-coup” when Fujimori dissolved congress and the judiciary and sent in tanks and soldiers. Demonstrators cried “Fujimori never again”, warning voters of the risks of electing the daughter of a man who fled to Japan and resigned by fax to avoid a corruption scandal and allegations of human rights violations.“The mistakes her dad could have made belong to Peru’s history and cannot be repeated, just like a political phenomenon like him will not repeat itself. But we can have his daughter, who can draw from her father’s and her own political experience to lead us forward,” says Tito Ortíz, a Lima-based accountant.For political scientist Cynthia Sanborn at Lima’s University of the Pacific: “To many the horrible internal violence of decades ago, the crimes of Shining Path and of Fujimori, were all just yesterday, but for some he was a saviour.”Ms Fujimori has pledged to respect democracy, human rights, and “not to use political power to benefit any member of my family”. Polls say the Columbia-trained congresswoman leads the race with roughly 35 per cent of the vote. But her rejection rates are the highest among the leading contenders, and may even rise after someone linked to her was named in the so-called Panama Papers.

Vying for second place in the race are Wall Street favourite, Pedro Pablo Kuczynski, an Oxford-educated pro-business economist and former prime minister, and the “pink tide” choice Veronika Mendoza, a Sorbonne-educated leftwing anthropologist, congresswoman, and former ally of the first lady, Nadine Heredia.

Although polls put Ms Fujimori comfortably in the lead ahead of the first-round, she is unlikely to secure the 50 per cent of the votes needed to win the election outright. JPMorgan said a June run-off between her and Mr Kuczynski “would be the best possible outcome from a market standpoint”. That is because, the bank says, “neither candidate is likely to alter the current policy direction”. Alternatively, one that pits Ms Fujimori against Ms Mendoza could send chills down investors’ spines, “heightening fears that Mendoza’s leftist ideology could lead to the implementation of anti-market policies”.Marco Arana, a former priest who has been at the forefront of anti-mining protests in the region of Cajamarca and is now running as vice-president for Ms Mendoza, counters: “They call us anti-system terrorists who are enemies of investment [but] our main flag is democratic social and environmental justice.”That may still bring uncertainty to one of the world’s top mining powerhouses, which is a major exporter to China. In the mid-2000s Peru’s economy, riding high on the commodity’s boom, became one of Latin America’s best performers, slashing poverty and growing at average rates of above 6 per cent.It then slowed with the end of the supercycle, growing a sluggish 2.4 per cent in 2014. Last year it rebounded to 3.3 per cent, and the central bank forecasts the economy will expand 4 per cent in 2016, showing Peru is relatively resilient compared to other resource-driven regional economies, such as Brazil.But the mining-fuelled advances have not strengthened institutions, leaving the country vulnerable to inefficiency, corruption and populism.

Confidence in the system was again undermined by the disqualification of candidates in the lead-up to Sunday’s vote. Julio Guzmán, once the second-placed candidate, was eliminated from the contest by an administrative error. He blames “the political establishment that has been governing the country for the past 30 years and is willing to impose on Peruvians their choice of convenience”.

Luis Almagro, secretary-general of the Organization of American States, says this has “generated a great judicial uncertainty and absolutely unnecessary political instability”.At a time when the left is in retreat in the region as economies slow, Ms Mendoza has emerged as a viable candidate in Peru among those who either felt left out of the boom or reject the old guard. According to Mr Kuczynski, his rivals are too extreme. “Peru does not want extremism,” says Mr Kuczynski. Peru’s future, he says, lies “at the centre, with economic growth”. Carolina Trivelli, a former minister now with the Institute of Peruvian Studies, believes that whoever becomes the next president must put Peru’s house in order: “We got along with highly precarious institutional and political systems for too long. But now that is limiting our economic development, so the bill is coming due.”

This is especially true in the US. Since the dark side of Switzerland’s bank secrecy laws was first exposed by US authorities in 2007, 85 Swiss banks have paid a total of $5.5bn in penalties and compensation related to claims they helped American clients sidestep tax collectors.

But that did not stop Reyl, a small Swiss bank based in Geneva, opening a branch in Dallas, Texas, this month. “We thought there was a contrarian opportunity,” says François Reyl, the chief executive whose father founded the bank in 1988. Clients these days are fully tax-compliant, he says, and are coming to him for help in safely diversifying dollar assets — and for sophisticated Swiss service.

His Texas experiment is an example of how Swiss businesses and entrepreneurs are seeking to reinvent themselves after a series of crises and scandals that have threatened the country’s reputation.

Switzerland’s 8m citizens are the wealthiest in the world and, although not in the EU, the country hosts some of Europe’s biggest companies including Nestlé, Novartis and Zurich Insurance.

It is not just the US actions against Swiss banks that have threatened “brand Switzerland”.

Zürich-based Fifa was last year hit by a corruption scandal that threw its future as football’s governing body into doubt and raised questions about how Switzerland polices the many multinational organisations based within the neutral territory.

Meanwhile, sharp swings in the Swiss franc have undermined its reputation for stability. They have also hurt tourism and its exporters. Swiss watchmakers — already facing a threat from Apple’s iWatch — have been badly hit.

Consumer surveys show Swiss banks’ reputation has suffered in the US and UK. “Every time there is a Swiss flag in the news, it does hurt our brand,” says a Swiss banker based in the US.

Yet the same surveys show “brand Switzerland” remains strong globally. The country has aspirational appeal and is seen as politically stable in China and emerging markets. UBS and Credit Suisse, its two biggest banks, have ambitious plans to lead the market in managing the wealth of Asia’s emerging rich.

“Perceptions about Switzerland haven’t changed,” says Nicolas Bideau, head of Presence Switzerland, a government department that monitors its image. “Maybe we’re even in a better shape because we’re still here, we didn’t give up.”That suggests there is life yet in the country’s economic model, even in harder times. Its banks are reeling from market turbulence while the strong franc helped hold back growth in gross domestic product to 0.9 per cent in 2015.

It could also offer guidance for policymakers elsewhere in Europe, especially the UK, where Switzerland is seen as a possible model were the British to vote to leave the EU in June’s referendum.

One explanation for Switzerland’s resilience is that US action against tax evasion simply reinforced its image as a refuge from intervening politicians, benign or malicious, domestic or overseas.

Switzerland’s traditional neutrality and economic liberalism make the country a “pirates’ harbour”, says Mark Pieth, law professor at Basel University. “If you look at the whole range of companies and organisations, you have to ask: why do they come to Switzerland?”

A more charitable explanation is that Switzerland’s banks have reformed their practices, while the country’s stability and role as a diplomatic as well as a financial intermediary remains highly valued in a turbulent world, whatever the blows struck by US lawyers.

Safe homeThe tax evasion chapter is only a small part of Switzerland’s story, argues Dominique von Matt, chairman of Jung von Matt, a brand consultancy based in Zürich. “There is a layer above that which is more important — the aspects of security and accountability, which are really important.”Switzerland has profited from its haven status since at least the second world war. Remaining officially neutral meant its industrial base was not destroyed. As financial markets globalised in subsequent decades, its strict bank secrecy laws “provided a useful marketing tool”, says Clive Church, professor of European history at the UK’s University of Kent. “When you got footloose capital looking for a safe home, Switzerland came into its own.”

But such features were not appreciated elsewhere. Harold Wilson, former UK prime minister, dismissed Swiss bankers as the “Gnomes of Zürich” during a sterling crisis in 1964.Political stability is ensured by a system of “direct democracy”, in which voters are the ultimate decision makers via frequent referendums, and federalism, which leaves power with its 26 cantons. Tax competition between the cantons means Swiss people and businesses pay some of the world’s lowest rates, attracting some of the world’s biggest commodity trading houses, for instance.“It is a cohesive system which does not give much power to any one person,” says Michael Ambühl, a former Swiss diplomat who is now a professor at Zurich’s Federal Institute of Technology.Organisations such as the World Health Organisation and UN in Geneva, and the Bank for International Settlements in Basel, have benefited from Swiss neutrality, while Fifa developed as a sports “association” unworried by prying official supervision.

Reputational hitBut the Swiss reputation for political astuteness faced a serious challenge in the 1990s. It underestimated the force of a US-led outcry over its treatment of Holocaust victims’ dormant bank accounts, which broadened into arguments about the handling of refugees during the second world war and the extent of its assistance to the Nazi regime. A $1.25bn compensation deal was agreed in 1998.

Then came the investigations into Swiss banking by US regulators, spurred by revelations from UBS whistleblower Bradley Birkenfeld. Privately, Swiss bankers and some politicians say Bern gave way too quickly in agreeing a deal on exchanging bank information with the US. A landmark settlement was agreed in 2009 with UBS, which paid a $780m fine. Credit Suisse took the biggest hit, when it was fined $2.6bn in 2014.

Switzerland’s image in Europe was also damaged by revelations about bank accounts used to hide wealth. Judicial investigations continue in France and Belgium against UBS, while Credit Suisse reached a €150m out-of-court settlement in 2011 with the German state of North Rhine-Westphalia.

The zeal of finance departments in neighbouring countries still grates with the Swiss. “That Switzerland was a haven was nothing new,” says Kaspar Loeb, brand expert at Dynamics Group, a Swiss communications consultancy. “But when deficits began to grow and the economic situation changed, these countries started to think: where is there money we can take?”

“We have often had a bad image in Brussels,” agrees Prof Ambühl. “It is difficult for a hardcore Eurocrat to understand that a country is functioning well and is wealthy without being in the EU. Some think it must be the result of something else — banking secrecy or taxes. Of course, that’s not true.”The need to ensure clients were fully tax-compliant hit Swiss banks hard. Credit Suisse saw more than SFr40bn ($41bn) in outflows from its international wealth management businesses as a result of tax “regularisation” programmes, which continue for clients from Italy.Although a fresh inquiry into allegations that UBS helped clients evade US taxes was launched by regulators last year, Swiss banks have realised that the rules of the game have changed.“Swiss banks have thoroughly reinvented themselves,” says Mr Reyl. “The multiple settlements with the [US] Department of Justice are clearly part of the past. We have moved to another world.” A top banker in Zürich adds: “What’s great about America is that you can sink to the bottom — and then make a comeback.”

During the latest bout of financial turbulence, Swiss banks have sought to market themselves as sophisticated wealth managers in an economically stable country. The Swiss central bank’s reputation was dealt a temporary blow in January last year when it abandoned the franc’s cap against the euro, in a bid to counteract aggressive policy easing by the European Central Bank.Local bankers argue that the unexpected rise in the value of Swiss assets highlighted how Switzerland had become a safe place to put savings at a time of great financial uncertainty. “Probably, the whole world thinks ‘if I don’t go into gold, I probably want to do something with Switzerland,’” says Iqbal Khan, head of international wealth management at Credit Suisse.

Switzerland reputation has been burnished further by its role as a diplomatic intermediary — it acted as a go-between for US and Cuba as well as in the 2008 war between Russia and Georgia, and this year has acted as a liaison between Iran and Saudi Arabia after ties were severed between the two countries over the kingdom’s execution of a Shia cleric.Such diplomacy “is one of the best campaigns you can do for Switzerland — it reflects neutrality, stability, security and reliability as well as international openness”, says Mr von Matt.Prof Ambühl adds: “Nobody in Riyadh talks about Fifa. Nobody in Tehran talks about Swiss banking. They know that we’re trying to be correct, neutral and to have no hidden agenda.”What will also matter for Switzerland, however, is whether the same will be thought about Swiss bankers setting up in the US.

Asia: Singapore focus offers opportunities and risks

At a time when tax secrecy has come under increasing pressure at home, Swiss banks have increasingly been tempted to pursue riches in Asia. The logic is compelling; wealth managers can tap the fortunes of Asia’s entrepreneurs while taking advantage of the confidentiality of Singapore’s banking laws to attract clients concerned by foreign tax authorities’ focus on Switzerland.While the big Swiss banks both have buoyant operations in the city-state, it is one of the smaller banks that most neatly illustrates both the opportunities and risks of the Swiss pivot to Asia.BSI, based in the Italian-speaking Swiss canton of Ticino, opened in Singapore in 2005 but began expanding rapidly in 2009. According to BSI’s annual report for 2014, the latest available, the Singapore branch “almost doubled its net profit” that year compared to 2013. BSI was surfing a trend. Between 2009 and 2014 net new assets managed in Singapore grew by $40bn, according to Deloitte. In the same period, Switzerland experienced an outflow of $135bn.In a 2011 letter, a star employee was congratulated for his “immense contribution” to the growth of the Asia business and the group as a whole. The employee was Yak Yew Chee, who is being investigated by Singapore authorities on suspicion of benefiting from “criminal conduct”.Mr Yak, who denies wrongdoing, managed accounts held by Malaysia’s 1MDB and other linked companies. This business has been valuable for BSI; the entire proceeds from a $3bn bond arranged on behalf of 1MDB in 2013 were wired into the state investment fund’s account at the bank.BSI has previously said that it is strongly committed to anti-money laundering controls and is co-operating with regulators. Mr Yak has now left the bank.Singapore, where $470bn of private client assets is under management according to Deloitte data, is under pressure to relax its banking secrecy. It has agreed to implement a global agreement on sharing tax information by 2018, but insists other major financial centres including Switzerland must do the same to “minimise arbitrage”.The Monetary Authority of Singapore said that it “does not tolerate the use of our financial centre for any illicit purposes, including serious tax crimes”. Jeevan Vasagar

LAGUNA BEACH – During a recent visit to the United Kingdom, I was struck by the extent to which the question of whether the country should remain in the European Union is dominating the media, boardroom discussions, and dinner conversations. While slogans and sound bites capture most of the attention, deeper issues in play leave the outcome of the June 23 referendum subject to a high degree of uncertainty – so much so that a single event could end up hijacking the decision.

Of course, the most cited arguments on both sides tend to be the most reductive. On one side are those who caution that departure from the EU would cause trade to collapse, discourage investment, push the UK into recession, and trigger the demise of the City of London as a global financial center. They point to the pound’s recent depreciation as a leading indicator of the financial instability that would accompany a British exit (or “Brexit”).

On the other side are those who argue that Brexit would unshackle the UK from the grip of EU bureaucracy and stop the flow of British taxpayer funds to other countries. The pro-Brexit camp also positions itself as fighting to protect Britain from an uncontrollable influx of immigrants, from imported terrorism, and from laws formulated by foreigners who lack sufficient understanding and appreciation of British culture.

In a noisy and rough campaign – one that has already divided the Conservatives and contributed to the unease within Labour over the party’s leadership – the appeal of such simplistic arguments is obvious. But Brexit is far more complex than the sound bites suggest. And, in fact, many of the underlying issues that should shape the referendum’s outcome are still subject to a high degree of uncertainty. Not only does that explain the inability of the British intellegentsia to reach consensus about the issue; it also leaves the Brexit question at the mercy of last-minute developments.

At the most fundamental level, Britain’s interest in the EU has centered on its status as a kind of supercharged free-trade area and an enabler of a “common passport” for financial services. But while Britons support the free movement of goods and services, they are not particularly keen on the free movement of labor. And they have little interest in “ever-closer union,” characterized by comprehensive political and economic integration.

This contrasts sharply with the vision upheld by many other EU members, including core countries like France and Germany, which view the EU’s single market as a stepping stone toward deeper integration, not an end in itself. Traumatized by past wars and supportive of regionalization as a way to succeed in a fluid global economy, ever-closer union seems like the key to ensuring continued peace and prosperity.

But the situation is far more complicated than just reconciling two clear but competing visions. Given widespread disagreement – including, as the referendum makes plain, within the UK itself – over what the “right” arrangement should look like, finding a solution that works for everyone seems all but impossible.

While British Prime Minister David Cameron has managed, in tricky negotiations, to secure concessions from his fellow European leaders regarding what would happen if the UK stayed in the EU, nobody really knows what would happen if British citizens vote to leave. Without knowing what specific regional arrangements would follow Brexit, the pro-EU camp cannot make a decisive economic and financial case for remaining. After all, following what admittedly would be a period of dislocation, the UK could end up with some type of association arrangement that preserves some of its current privileges, thereby limiting longer-term disruption.

The anti-EU camp is no better off. It is difficult to prove that membership in the EU – which opponents portray as meddlesome and disruptive – has made Britain materially worse off. And the ever-closer union that Brexit advocates so adamantly oppose is far from a sure thing. In fact, the EU has been struggling to tackle collectively the challenges it faces – in particular, the refugee crisis, which has already strained passport-free travel within the Schengen Area (one of the most visible, celebrated, and appreciated achievements of European integration).

In the face of so much uncertainty, British voters would ultimately have to make their decision on the basis of pragmatic, not strategic, considerations. And perhaps the most pragmatic choice would be to remain in the EU, at least for now, thereby preserving the option of changing their collective mind later, should new information warrant it.

Some are inclined to push harder. They believe that a better version of this de facto “muddled middle” can be achieved through a game of “chicken.” The UK votes to leave now, in the hopes that a panicked EU would not only grant further concessions, but also alter its own vision of ever-closer union. With this high-risk strategy, the UK could end up decisively reshaping the EU according to its preferences. But, given the other challenges currently facing the EU, this is not a likely outcome.

That is why remaining in the EU would be Britain’s best bet. Such an approach would enable the UK to avoid the near-certainty of short-term disruptions, bank the concessions that Cameron has already secured, and keep their future options open, particularly as the EU itself evolves. But that does not mean it is not a gamble. After all, pragmatism does not always bring about the desired outcome.

Without a solid strategic vision, British citizens could end up ignoring analytical pragmatism, and instead decide how to vote in the referendum in response to a sudden event. Given the horrific terrorist attacks in Paris in November and in Brussels last week, one must not ignore the possibility that the deplorable actions of disruptive non-state actors could become the pivotal factor determining the outcome of a referendum on the historic interactions of nation-states. Should this awful possibility materialize, it would be a tragedy in more ways than one.

Well, I just can’t resist the “freeze” nonsense emanating from rumor mongers and trading algos to squeeze shorts once again. It must be the 6th or 7th time this lame nonsense has hit the tape.Sure, today the rig count dropped to near record lows. This should raise prices once again but once again it’s the boy that cried wolf. A quick inspection shown below is a current satellite photo of thirty super tankers lined up near Basra Iraq features the tsunami of oil ready to hit the markets. It ain’t freezing there.

I promised myself a day off Friday and dammit, I’m going to stay with my pledge.Below is the heat map from Finviz reflecting those ETF market sectors moving higher (green) and falling (red). Dependent on the day (green) may mean leveraged inverse or leveraged short (red).

Emerging markets bounced back in the first quarter after three years of torpor but the deteriorating credit quality for many government and corporate borrowers signals possible trouble ahead

By Carolyn Cui

Brazil’s real has gained 9% against the dollar so far this year. Photo: Dado Galdieri/Bloomberg News

Emerging markets bounced back in the first quarter after three years of torpor but the deteriorating credit quality for many government and corporate borrowers signals possible trouble ahead.Monetary easing by major central banks, as well as a firming of oil prices and other commodities during much of the quarter, powered emerging-market stocks and bonds higher.Brazil, Turkey and Mexico led the way, with their main stock indexes on pace to climb 18%, 16% and 7%, respectively, in the quarter, compared with a 1% gain for the S&P 500.Currencies also gained ground against the dollar, with the Brazilian real and Russian ruble gaining 9% and 5.8%, respectively, in the year to date.Credit-rating firms, however, have been looking beyond the recent emerging-markets rally at more ominous signs for developing countries: weaker global growth, commodity prices that remain well off their recent peaks and the prospect of a stronger dollar that would raise the cost of repaying dollar-denominated debt.

The economic backdrop has led credit agencies to cut ratings on emerging-market dollar-denominated bonds to their lowest level in more than six years. Downgraded in the quarter was the sovereign debt of more than 10 emerging-market countries including Azerbaijan, Bahrain and Poland. Debt from South Africa and Saudi Arabia was put under review for possible downgrades.The J.P. Morgan Emerging Markets Bond Index Global Diversified, the mostly frequently used index, has recently slipped below investment grade based on ratings of Standard & Poor’s and Fitch Ratings, according to the bank.“I think we’re going to see a period of balance-sheet deterioration across emerging markets,” said Rashique Rahman, head of emerging markets at Invesco, which oversees $4 billion of emerging-market bonds. “We’re at the early stage of that.”Lower credit quality indicates a higher probability of default. A recent J.P. Morgan Chase survey of clients showed that nearly half of the respondents expected the default rate among speculative-grade emerging-market corporate issuers to exceed 5% in 2016, well above the bank’s forecast at 3.5%.

Some investors say the rating actions may exaggerate default risk. Many emerging countries have ended their currency pegs to the dollar, built up foreign reserves and issued more debt in their own currencies, making them less vulnerable to the dollar’s strength.“Given the weakness we have seen in commodity prices and the strength in the dollar, the fact that we haven’t seen a spike in default rate is probably an indication that emerging economies are stronger than people thought,” said Luca Paolini, chief strategist at Pictet Asset Management, which has $185 billion of assets under management. “Downgrades often come at the end of market declines.”Still, rating actions can have a bigger impact on emerging-market bonds than on debt from Europe and the U.S. because other reliable information in the developing world can be harder to come by.A slip into junk territory can also trigger forced selling from big investors like public pension funds and insurance companies, which often have guidelines mandating that a certain percentage of their holdings have an investment-grade rating.Brazilian debt was among the latest downgrade victims after falling below investment grade. Fitch Ratings cut the sovereign to junk status on Dec. 16, which followed a similar move by Standard & Poor’s. Brazil’s government bonds lost 4% in price that day, according to MarketAxess.The downgrade led to the exclusion of Brazilian bonds from the investment-grade bond indexes of BarclaysBCS-0.29% PLC, causing forced selling of about $5.2 billion for Brazilian government bonds, while high-yield funds bought only $1.4 billion of these bonds, according to Barclays estimates. Brazilian bonds made back some of those losses during the first quarter but remain below pre-downgrade levels.Azerbaijan, an exporter of oil and copper, lost its investment-grade ratings from all three agencies during the quarter. Its currency, the manat, weakened 2% against the dollar, while its government bonds edged up 0.8% in price.Emerging-market crises struck frequently in the 1990s, when massive capital outflows forced Mexico, Thailand and Russia to end their currency pegs to the dollar, leading to a wave of corporate defaults on dollar-denominated debt.Debt has ballooned again in recent years. Emerging-market dollar-bond issuance is up by more than 50% since 2008 to about $1.9 trillion, according to the Bank for International Settlements.More rating cuts are expected to hit emerging markets in the coming months: 31.4% of issuers rated by S&P in developing countries currently have a negative outlook or are on the watch list for potential downgrades, the highest level in more than six years. Many of the borrowers are in Brazil and Russia.Dedicated emerging-market managers are allowed to hold both investment grade and junk bonds, but prices of the bonds are susceptible to forced selling. Mr. Rahman of Invesco said he is looking for either high-quality bonds or “deep-value opportunities.”“It’s hard to be in the middle, where you’re seeing still some stuff gravitating toward subinvestment grade,” said Mr. Rahman.Some long-term institutional investors say they are betting on emerging-market debt despite the uncertainty. The Connecticut Retirement Plans and Trust Funds allocate 4.8% of their $27.9 billion under management to emerging-market bonds.“We believe emerging-market economies have the capacity to grow, and that as the economies mature, credit quality ratings will likely improve,” said David Barrett, communications director to the office of Connecticut State Treasurer Denise Nappier.

In the long list of nightmares that market risk managers have to wrestle with on a daily basis, some have gradually receded. For competently-run banks and large trading institutions, the possibility of a rogue trader making undiscovered trades or mis-marking his own book - another Nick Leeson - is increasingly remote given the layers of oversight. But one nightmare in particular has been increasing in frequency since 2009, especially as Volcker Rule and Dodd-Frank restrictions have been implemented.The concern is market illiquidity. Every year that goes by, liquidity in the financial markets is declining. This is not apparent to the casual observer, or casual investor, who faces a tight market for his hundred- or thousand-lot. But probably every institutional investor has a story of how his attempt to hit a bid on the screens resulted in his trading the minimum size while the rest of the bid fled with sub-millisecond dispatch. And so the question is: if your mutual fund is hit by redemptions at the same time that its market (equities, emerging markets, credit?) is falling apart - and that is the normal time that redemptions swell - then at what price will it be able to get out? And what if there is no bid at all that is big enough?Banks and other dealing institutions have responded to both the new regulatory restrictions themselves, and to the effects of the restrictions, by decreasing the size of their balance sheet dedicated to trading. Much of the apparent 'liquidity' in the market now is provided by the algos (the algorithmic trading systems) who as we have seen can be there and gone in an eyeblink. I am not aware of anything that has been done in the wake of the various "flash crashes" we have seen that would lead me to have great confidence that in the next big market discontinuity markets will function any better than they did in 2008. In fact, public liquidity is quite a bit smaller and I would expect them to function a fair bit worse.Yes, many institutions have begun to access "dark pools" where they face anonymous counterparties in crossing large trades, rather than chasing hair-trigger algos for a fraction of the size they need. But nothing is particularly soothing about the dark pools, either (starting with their name). The whole point of a market discontinuity is that flow traders end up all on the same side of the flow; in these times we want the speculative traders with big balance sheets to take the other side of trades at a price that reflects a reasonable return on their capital. Those spec traders, or at least the big-balance-sheet banks, aren't providing extra liquidity in dark pools either.Banks have also responded to the beat-down regularly administered by socialists like Bernie Sanders and by sympathetic ears in the press (and among the populist splinters of the right as well) - by cutting the experienced and expensive traders who have more experience in pricing scarce liquidity, and perhaps finding it sometimes. Again, none of this makes me optimistic about how we will handle the next "event."None of this rant is new, really. But what is interesting and new is that the illiquidity is starting to show up in very visual ways. Regular readers know that my primary area of domain expertise is in rates, and specifically in inflation. Consider the chart below (source: Enduring Investments), which I would consider strong evidence that market liquidity in inflation is worse now than it was two years ago. The chart shows 1-year inflation forward from various points on the inflation curve. That is, the point on the far left is 1 year inflation, 0 years forward (in other words, today's 1-year inflation swap). The next point is 1 year inflation, 1 year forward. And so on, so that the last point is 1 year inflation, 29 years forward.

Ignore the level of inflation expectations generally - that isn't my point here. Obviously, inflation expectations are lower and that is not news. But the curve from two years ago shows a nice, smooth, "classic rates derivatives" shape. Inflation is priced in the market as rising in smooth fashion. This doesn't mean that anyone really expects that inflation will rise smoothly like that; only that such is the best single guess and, moreover, one that has nice characteristics in terms of derivatives pricing and transparency.The blue curve shows the curve from last Thursday. Now, I could have chosen any curve in the last month or two and they would have been similarly choppy. You can see that the market is evidently pricing in that inflation will be 1.72% over the next year, and then decline, then rise, then decline, then rise irregularly until 9 years from now when it will abruptly peak and descend.That's a mess, and it is an indication that liquidity in the inflation swaps market is insufficient to pull the curves into a nice, smooth shape. This is analogous to one important characteristic of a planet, from an astrophysicist's point of view: any body that is not sufficiently massive to pull itself into a sphere is not a planet, by definition. I would argue that the inability of the market to pull the inflation curve into a nice and smooth "derivatives" shape is an early warning sign that the "mass" of liquidity in this market - and in others - is getting worse in a visually-apparent way.

Campaigners for and against ratification of the trade deal gathered in Amsterdam on Sunday.Credit Evert Elzinga/European Pressphoto Agency

LONDON — A local, nonbinding referendum on a signed-and-sealed European trade deal might not normally make for high political drama. But if the Dutch say no on Wednesday to a two-year-old agreement between the European Union and Ukraine, the vote could cause major headaches for Brussels, the Dutch government and even the British one.

At issue is an association agreement signed in March 2014, just after the Maidan uprising that caused Ukraine’s president at the time, Viktor F. Yanukovych, to flee his country. The deal creates a free-trade area between the 28-nation bloc and Ukraine, and points toward a gradual economic convergence with the rest of Europe.

It was the very idea of this arrangement — and Moscow’s strong opposition to it — that caused Mr. Yanukovych to change his mind and reject the deal, prompting the uprising that finally deposed him. The current government in Kiev is in favor of the agreement, which the other nations of the European Union have ratified and which, in fact, has been partially fulfilled.

Jan Roos of the Dutch euroskeptic group GeenPeil — which means “not a clue” and is supposed to characterize the European Union.Credit Bart Maat/European Pressphoto Agency

The Netherlands, however, has both a shaky coalition government, with elections due next March, and a new law on referendums. Now, a Dutch euroskeptic social-media group called GeenPeil — which means “not a clue” and is supposed to characterize the European Union — is using the new law to test popular opinion on the agreement.

The group quickly got far more than the 300,000 online signatures required to force a plebiscite, asking the Dutch whether they “support or oppose the ratification of the Association Agreement between the European Union and Ukraine.” Given the newness of the law and the heat around the arguments, GeenPeil is confident of getting the required turnout of more than 30 percent of voters to make the referendum valid.

The awkwardness for Prime Minister Mark Rutte is that while the Dutch Parliament has ratified the agreement, an instrument of ratification must be deposited with the European Union in Brussels for it to be legal. This gives legal space to the referendum, said Rem Korteweg, a Dutch analyst with the Center for European Reform, a London-based research institution.

If Dutch voters oppose the deal against the vote of their duly elected Parliament, as they are currently expected to do, Mr. Rutte “will have to find a middle road,” Mr. Korteweg said. After all, he noted, the Netherlands currently holds the rotating presidency of the European Council.

But a “no” vote would be awkward, given that Geert Wilders, the fiercely anti-Brussels opposition politician, is again doing well in opinion polls and is neck and neck with Mr. Rutte’s party. That is one reason Mr. Rutte has kept a certain distance from the referendum, only recently doing media interviews to support ratification, because he does not want to alienate the euroskeptics — even those within his own party — while also trying not to anger his European partners.

A trend toward more “popular democracy” is visible in Europe, with other countries, like Hungary, flirting with referendums. Such direct votes are likely to follow on other issues, meaning European Union decision-making, already complicated, could become even harder, especially if the decisions of democratically elected governments and parliaments cannot be considered binding and final.

Any further public support of euroskepticism would cause concern for Prime Minister David Cameron’s government in Britain, which faces its own fiercely fought referendum on June 23 on whether to stay in the European Union, which Mr. Cameron favors.

The usual problem with referendums is that voters tend to vote emotionally on what bothers them, not necessarily on the merits of the question asked. The European Union is out of favor and so is Ukraine, which remains fairly corrupt even after the Maidan revolution and democratic elections.

Nor will new revelations in the Panama Papers about offshore accounts held by the current

Ukrainian president, Petro O. Poroshenko, help those who want to defeat the referendum.

But those revelations could cut both ways, since they also suggest that President Vladimir V. Putin of Russia, through close friends and intermediaries, has even more money stashed away offshore. Mr. Putin is hardly popular in the Netherlands, given that 193 Dutch passengers were killed in 2014 when Malaysia Airlines Flight 17 was shot down by a Russian-made missile fired by Russian-backed Ukrainian separatists. The Dutch public was strongly behind the European Union’s imposing sanctions on Russia for its actions in Ukraine.

Mr. Putin is watching the referendum carefully, since a “no” vote “feeds into his agenda because it shows disunity in Europe on Ukraine policy,” Mr. Korteweg said. Mr. Putin is eager both to keep Crimea, which Russia annexed, and get the European Union to remove the sanctions on Russia. The Italian government, for example, has already questioned whether those sanctions might be reviewed when they are up for renewal in July.

But even the GeenPeil organizers say that the referendum has more to do with anger at the European Union than with Ukraine or Russia. The “yes” campaign is pressing that issue, warning that a “no” would give Mr. Putin what he wants. So whatever the intention of the referendum, the results are likely to be judged differently.

As Carl Bildt, the former Swedish foreign minister, said, “The Dutch referendum on Ukraine tomorrow might be a joke, but one that could have very serious consequences.”

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.